Social Security Taxes

George F. Will

Moynihan's Plan Exposes Pretense That The Deficit Is Disappearing

January 11, 1990|By GEORGE F. WILL Columnist

WASHINGTON — The first tick of the clock on New Year's Day triggered another phase of one of the nine tax increases of the nine Reagan-Bush years. And this year will be just 23 days old when Sen. Pat Moynihan proposes a bill to repeal this most recent tax increase, and thereby begin to stop "the leakage of reality from American life."

He would repeal the Social Security tax hike. That increase was proposed by the 1983 Greenspan Commission, of which Moynihan, D-N.Y., was a member. He also would further cut the Social Security tax rate on Jan. 1, 1991. This would sharply increase the reported budget deficit (by $62 billion through 1991 alone), but only by revealing what the government's real operating deficit is.

Moynihan's measure would stop the swelling of a huge Social Security surplus. By including that surplus (and those of other trust funds) in the unified budget, the real deficit - approaching $300 billion - is cut in half, cosmetically.

The Greenspan Commission proposed the Social Security tax increases to build reserves for the population "bubble" of baby-boom retirees next century. But the reserves are not being reserved. They are being spent, mashing the real deficit. So either way, large tax increases will be needed in the future. By making it official that Social Security is an intergenerational transfer-payment program, on a pay-as-you-go basis, Moynihan would make the real deficit - the gap between government outlays and non-Social Security revenues - visible.

Moynihan is practicing sauce-for-the-gander politics, doing for Democrats what Reagan and Stockman did to Democrats. In 1981, Reagan and Stockman said, to themselves, in effect: Maybe our tax cuts will be self-financing - so stimulative to the economy that no deficit will occur. But if not, the deficits will serve a political good by applying pressure for restraint on the growth of government.

Moynihan denounced this reckless abuse of fiscal policy for political purposes. But now he, too, is willing, and rightly so, to reduce the revenue base of the government for therapeutic purposes. In 1983, he supported the schedule of Social Security tax increases on the assumption that the surpluses would be put to some use other than the perpetuation of fraud, the disguising of the government's operating deficit.

Ideally, Moynihan's proposal would confront the government with the need either to make politically difficult spending cuts or adopt more candid, rational and equitable revenue sources to shrink the real huge deficit, suddenly made visible. Alas, as the 1980s showed, there is a third course - a borrowing binge to finance the deficits. However, a necessary pre-condition for sound policy is a willingness to face facts, such as this: After five years under Gramm-Rudman, the government's operating deficit is growing.

Some liberals may flinch from Moynihan's radical budget surgery. Because taxophobia is the strongest political passion today, some liberals believe the flow of Social Security tax dollars is necessary for domestic spending programs. But liberals cannot remain liberals and remain collaborators in the current process whereby Social Security revenues are used for the slow, surreptitious semi-repeal of a great liberal achievement: the 16th Amendment, and heavy reliance on the income tax.

That has been happening, with the connivance of a Democratic-controlled Congress. Federal taxes in the first year of the Bush administration are about what they were in the last year of the Carter administration, around 19 percent of GNP. What the "Reagan revolution" changed radically is the incidence of taxation. Income taxes were cut and made less progressive. The regressive Social Security tax rate (the same rate for all payers; and income above $51,300 is exempt) increased 25 percent in the 1980s. Now the burden of the Social Security tax (including the employer's share) is larger than the income-tax burden for 74 percent of all taxpayers.

Conservatives, too, should rally 'round Moynihan, and not just because some of them have never met a tax cut they didn't like. Thoughtful conservatives fear that the Social Security surplus, perhaps supplemented by a "peace dividend" carved from the defense budget, may be used by liberals to fund new government programs, perhaps addressing the most pervasive anxiety of the 1990s - health care for an aging population, parents who caused the baby boom.

Spending, say, $50 billion on a continuing basis for a politically well-crafted program could, says Texas' Republican Sen. Phil Gramm, "move millions of votes." Gramm fears a paradox: The anti-communist rebellion against statism in the Soviet bloc could give rise to a defense-cutting euphoria that, combined with Social Security surpluses, results in too much government here.

That is one possible choice. But before the choosing begins, Moynihan's bill, a blow for candor and equity, should be passed. It would deprive Democrats and Republicans of the choice of continuing the pretense that the deficit is disappearing.